On November 19, 2013, I penned an article on how Dropbox’s capitalization is symbolic of how unjust America’s capital markets have become.
At the time, Dropbox was raising a $250M private round of financing at an $8B valuation – approximately 68 times 2012 revenues. Retail investors, of course, were not invited to the party.
In the piece, I pondered what Dropbox’s valuation would be when it finally does give the investing public the chance to buy its shares. Would Dropbox eventually go public at a $16B valuation? A $25M valuation? At what revenue multiple will the minions have the privilege of serving as the exit strategy for the venture capitalists, I wondered.
Now – nearly five years later – I finally have my answer.
The cloud services and storage company said that it expects to raise $648 million in its initial public offering – selling 36,000,000 shares between $16 and $18 per share. This would value Dropbox somewhere between $7 billion and nearly $8 billion – less than its 2013 valuation and falling well below the $10 billion valuation it received in 2014.
Until just recently, for years, Twitter has been trading well below its IPO price. And it took Facebook IPO investors 14 months just to break even from Facebook’s disastrous IPO.
It remains to be seen how Dropbox’s IPO investors will fare. Perhaps IPO-ing below its previous round will save Dropbox’s IPO investors from a similar fate.
Regardless of how Dropbox ultimately performs in the public arena, its IPO is yet one more example of how dysfunctional our equity markets have become. The postponement of IPOs, until long after critical company growth spurts have passed, have been detrimental to retail investors, the startup community and even to innovation as a whole.
Like Facebook and Twitter, Dropbox should’ve gone public years earlier – before its valuation surpassed the billion dollar mark. Just like Microsoft, Amazon, Intel and Dell – to name a few.
While today’s most coveted emerging growth companies appreciate in the hands of venture capitalists instead of in the retirement portfolios of ordinary Americans, smaller – yet compelling – Reg A+ IPOs like Chicken Soup for the Soul Entertainment ($CSSE) are getting raked through the coals by market manipulators and abusive shorters. It is particularly disconcerting considering that it has been America’s publicly traded small caps that have long served as the backbone of the U.S. economy and enabled NASDAQ to become the greatest wealth producing engine that the planet had ever seen.
The economy could be so much stronger and far more balanced if we simply allow small cap IPOs the same opportunities as large caps to thrive on public stock exchanges.
We have the cure. It would be a shame not to use it.